Mortgage: Tips can help you avoid delay in home closing

Published 9:40 am, Friday, July 24, 2015

Avoiding closing day nightmares, such as a long delay or, worse, a canceled home sale, requires complete communication from the day a contract is signed until the house keys are exchanged.

Here's an example:

Think signing a mountain of papers at a real estate closing is tough? Try getting multiple owners in an estate sale to sign the same stack on the same day.

"In one case we had 14 heirs," said Helen Krause, marketing director of New World Title & Escrow in McLean, Virginia. "The local heirs thought one trustee could sign for everyone, but that depends on the title company and the lender. Potentially you can need a signature from every single heir to an estate, so it's important to get the title company involved as soon as a purchase contract is signed."

Krause said it took days to reach each person, explain the documents and receive a notarized signature via overnight mail.

"Unlike other paperwork that can be signed electronically, the signatures on settlement papers have to be 'wet signatures' that are notarized because of concern about fraud," Krause said.

When cash isn't king

You might expect an all-cash home purchase to eliminate closing headaches because no loan paperwork is required. But Maureen Pfaff, chief financial officer for Olympic Peninsula Title Co. in Port Angeles, Washington, said one of her company's closings was delayed 10 days because of a personal check.

"The cash buyer was reminded several times that a wire transfer or certified check was required, but he still brought a personal check," Pfaff said. "He said his bank in Arizona wouldn't wire funds unless he requested this in person, so eventually we delayed the closing for 10 days until his personal check cleared and the funds were fully available."

In this case, the sellers weren't in a hurry, but frequently a closing delay can cause major hassles for buyers and sellers in the process of moving and have a domino effect when several settlements are scheduled back to back.

Kids, dogs and delays

A four-day delay turned into a nightmare for a family from Virginia when they were relocating to Kansas, said Elizabeth A. Daniel, regional operations manager for Continental Title Co. in Overland Park, Kansas.

"This family with seven kids, two dogs and a bird had to stay in a hotel room and then hang out in our office every day for four days because the VA (Veterans Affairs) lender kept saying the paperwork was on its way," Daniel said. "We finally sent them to a local swimming pool one day because we felt so badly for them."

Closings delayed for unpaid $65

Another delay occurred because of a petty dispute with a homeowners association, Daniel said.

"The sellers said they were up to date on their dues, but we have to get confirmation from the HOA and find out if there are transfer fees that must be paid," Daniel said. "We contacted the volunteer who ran the HOA seven times without a response and then finally he responded and said the sellers had missed a $65 payment the previous year. He held up the closing until that would be paid and held up four other closings within the same HOA until that one bill was paid.

"We finally paid the $65 just to avoid holding up the closings."

New transaction rules

New real estate forms and rules from the Consumer Financial Protection Bureau that go into effect Oct. 1 may ease some of the strain of settlement issues, primarily because buyers and sellers must receive all documents three days prior to their closing. If anything must be changed on the closing documents, the clock resets and the settlement must be delayed until three days after the new paperwork is generated.

"If you have to reset the paperwork and the settlement date, you could lose your lock on your loan's interest rate or even the deal if the sellers have a kick-out clause and a backup buyer," Pfaff said. "I recommend writing longer contract contingencies to give you more time if requirements can't be met fast enough."

Avoid closing delays

Communicate early and often to avoid closing problems, Pfaff said.

"If you're planning to travel or are buying an out-of-state property, you need to be sure you've made arrangements for an in-person signature," she said. "Sometimes a power of attorney can be executed, but it has to be the right type and approved by the title company."

Whether you're a buyer or seller, read the information sent by the settlement company and call immediately if there's something you don't understand.

"In one case a woman wanted her father on the title, but he wasn't in town and no one had read the papers that explained the need for his signature," Krause said. "We had to send the papers to South Carolina, have them notarized and returned before we could complete the closing."

Initiate withdrawal requests from an IRA or 401(k) a week or more before the closing to make sure the money is in place when needed. Daniel said that it's common for buyers to wait until the last minute.

Krause said another common issue occurs with foreign owners who must have 10 percent of the sales proceeds withheld for the IRS unless they are eligible for a tax waiver. She said sellers must apply early for a waiver to make sure it comes through prior to settlement.

Buyers who opt to apply for an extension on their tax returns also can run into settlement delays because lenders must review their most recent tax returns, Krause said.

To prevent most types of closing problems, Daniel said, "communication needs to be amazing, with proactive emails and calls and a 'last call' email to make sure all preparations are in place prior to the settlement."

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